Wednesday, May 21, 2014

“POVERTY MORE IMPORTANT THAN INEQUALITY”

Deirdre McCloskey is to be interviewed on BBC 4, 26 May, next Monday evening, 8.30 pm HERE on an explosive theme for activists and revealing for Smithian scholars.

“Evan Davis interviews economic historian Deirdre McCloskey in front of an audience at the London School of Economics, where she argues that poverty matters more than inequality. She describes how at the beginning of the 19th century most people who had ever lived had survived on $3 a day. Today, on average, people in Western Europe and North America live on over $100 a day. Although Professor McCloskey is an economic historian, she says we can't explain this 'Great Enrichment' using economics alone. She also argues that capitalism is an inherently ethical system, and that it would be a mistake to prioritise equality over innovation. Prof McCloskey talks about the role of ideas and attitudes in creating modern prosperity and discusses what her study of history tells us about where our priorities should lie today.”

Comment

Sounds like something I would agree with. To focus solely on inequality, as the activists concerned with the “99-1” ratio do, is in my view to miss the point, and to lead off into a great diversion of political energy, such as I was trailing on Sunday last: “ADAM SMITH'S UNDERSTANDING MORE USEFUL THAN KARL MARX'S CAPITAL”.

I suggested then:

“In the meantime, I have been thinking about inequality in the rich countries and what it means. I have been struck for many years by the phenomenon of inequality and why we appear to be concerned about it, particularly as some of the reasonably well-off middle-classes in the richest economies are expressing strong views about it.”

Meanwhile, in the poorest countries, where serious poverty is rampant and incomparably worse than ‘poverty’ in the richest countries, and migration traffic is all one-way towards becoming ‘poor’ in the richest countries, where those in ‘poverty’ there, bad as it they are compared to the majority, are incomparably ‘better off’ than the poorer migrants from whence they came from, usually at great personal risk and incredible relative expense.

What made poverty so discriminatory in the poorest countries (where the richest ‘1%’ - or even the richest ’20%’ are also less rich than the richest in the richest countries) to cause such anguish for the abundant well-off middle-class activists in the richest countries?

We can extend that comparison to compare the majority of the populations in the richest countries today with their richest predecessors (‘robber barons’, ‘idle rich’ etc.) in these countries, who preceeded them 100-300 years ago. We find today’s richest populations up and down the income scale from rich to poor, much richer in terms of access to consumables and housing, health, education, leisure activities and such like, than the same relative high-income classes of those yester years.

The causes of these welcome increases in personal wealth enjoyed by the majority of the populations in the richer countries are, of course, controversial, but the stark difference between the richest populations and the poorest populations elsewhere across the world, is closely related to the extensive roles of markets, development, infra-structure, and enlightened states of knowledge, based on competing political rulers in democracies, personal liberties enjoyed by most poeople, and access to justice under law in the richest countries, and the relative - and in some dire cases - the almost total absence of such social norms, in the poorest countries. Economic and institutional political differences are among the common differences between developed and undeveloped countries.

That is why I agree with McCloskey that poverty is more important than inequality. Those risking everything to escape from their poor-world poverty to participate, in rich-world poverty, provide a salutary service to electorates in the richest countries and their political parties.

Concentrate on encouraging similar institutional and behavioural changes that have been conclusively demonstrated to work at reducing world poverty through raising per capita incomes from under $3 a day towards $20, $40, $80 a day through their market - state economies. This may take time, but decades, centuries in some cases, have been wasted in the recent past in pursuit of ‘quick fixes’ and ‘political’ experiments (socialism, marxism, oilgarchies and family dynasties, planning, and so-called ‘aid’ - much of it syphoned off in corruption and unsustainable projects).

Hence, as a Smithian political economist, I look forward to hearing what Deirdre McCloskey has to say, and warmly recommend her two previous volumes, “Bourgeois Dignity” and “Bourgeois Virtue”, Chicago, to those who have not yet read them (try Amazon for low priced volumes).